Risk Premium Shocks Can Create Inefficient Recessions

• 成果类型: Article
• 署名作者: Di Tella, Sebastian; Hall, Robert
• 署名单位: Stanford University; Stanford University; Stanford University
• 刊物名称: REVIEW OF ECONOMIC STUDIES
• ISSN/ISSBN: 0034-6527
• DOI: 10.1093/restud/rdab049
• 发表日期: 2022
• 页码: 1335-1369
• 关键词: stock-market; uncertainty shocks; INVESTMENT; explanation

摘要

We develop a simple flexible-price model of business cycles driven by spikes in risk premiums. Aggregate shocks increase firms' uninsurable idiosyncratic risk and raise risk premiums. We show that risk shocks can create quantitatively plausible recessions, with contractions in employment, consumption, and investment. Business cycles are inefficient-output, employment, and consumption fall too much during recessions, compared to the constrained-efficient allocation. Optimal policy involves stimulating employment and consumption during recessions.